British households suffered a fall in disposable income last year for the
first time since 1981.

Family incomes after tax and adjusted for inflation fell by 0.8 per cent during 2010, the biggest fall since 1977 and the first reduction for 30 years, the Office for National Statistics (ONS) reported yesterday.

Millions of workers have had their salaries frozen but are paying more for essentials, such as food and fuel. Official forecasts have warned that the squeeze on living standards is likely to last until 2013.

Yesterday, George Osborne, the Chancellor, came under pressure from a committee of MPs to ease the impact of the economic turmoil on families.

The Treasury forecasts that household debts will rise over the next five years, contrasting with official predictions last year that they would fall. Mr Osborne said: “We are coming out of an incredibly difficult situation. As a result there is a squeeze on disposable household income. That makes life difficult for households.”

He said that government initiatives to freeze council tax and cut fuel duty were designed to help families but added: “At some point, you’ve got to take some difficult decisions and the public has to share the burden of that.”

The Chancellor also disclosed that the OECD, an international economic body, had written to the Treasury stating that it believed the measures taken in the Budget were “unavoidable”.

The ONS announced the fall in disposable income after confirming that the economy shrank again during the final three months of 2010. If growth slips further in the first three months of this year, the country will officially be back in recession.